The 30-year fixed mortgage rate fell to 4.91 percent for the week ended Nov. 12, , down from an average of 4.98 percent a week earlier, and has now been below 5 percent for five of the last seven weeks, reports Freddie Mac. Also, 15-year fixed loans fell to 4.36 percent from 4.40 percent; five-year hybrid adjustable-rate mortgages declined to 4.29 percent from 4.35 percent; and one-year ARMs slipped to 4.46 percent from 4.47 percent.

As was discussed in greater detail last week, these low mortgage rates will not last forever. It may seem counter-intuitive, but this may be the best possible time to secure low financing rates and a below market price on real estate in Nashville.

The National Association of Realtors does predict that as home sales increase in 2010 (5% increase is forecasted), so will interest rates. The thought is that as consumer confidence returns to the marketplace, the Fed will slowly respond by inching up the borrowing rates.

Commercial real estate update

According to NAR’s Chief Economist Lawrence Yun, “Who is buying? The answer is no one,” he explained. “The level of transactions is way down. We’re looking at an almost 90 percent decline from peak to current levels.” Simply stated, the commercial real estate market has fallen off a cliff.

One particularly hard-hit area of commercial is the office sector: National vacancy rates are getting precariously close to 20 percent and sales volume has fallen as far as 93 percent from its peak just a few years ago. If your company is concerned about your commercial real estate holdings, you should call or email the guys at Cumberland Commercial in Nashville. Once you read their bios, you’ll understand why.

This is a post from Grant Hammond's Nashville Real Estate Blog.

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“Market Center Management Company is in negotiations for a downtown location to bring its mammoth medical trade center to Nashville, a move that developers say will bring thousands of health care professionals to Music City annually to a center larger than the city’s planned convention center.

Executives with the Dallas-based Market Center would not yet reveal the site for the $300 million Nashville Medical Trade Center, but say the existing building will allow the company to open 275,000 square feet of exhibit space by July 2010 and then start construction on the remaining phases at a nearby location.

Only a few buildings downtown offer that much space. The AT&T building has 280,000 square feet available, and the new Pinnacle tower slated to open in January has 240,000 square feet available, which wouldn’t be enough room unless they split up the space, says Whit McCrary, office division leader for real estate broker Colliers Turley Martin Tucker.

The entire project is 1.5 million square feet of medical convention and trade center space - larger than the city’s planned construction of the 1.2 million-square-foot Music City Center south of Broadway. The trade center will take several years to complete, but developers don’t have a set timeline.”

You may also recall that Market Center has recently retained long time Nashville resident David Osborn to serve as a key consultant to the project. Osborn has thick Vanderbilt ties as well as ties to venture capital based health care solutions.

Yes, I too think that we are jumping the gun on what only amounts to site selection, but if you’ll recall a very similar flurry of stories hit back in 2005…just before Nissan North America announced its headquarters move to Nashville, TN. However, Nashville has been named to PMI’s top 10 most stable real estate markets and Nashville has added jobs to its city in this exact manner before. If I had to guess, I would say that both the new convention center and medical trade center will be building and/or completed within the next 5 years.

This is a post from Grant Hammond's Nashville Real Estate Blog.

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This is a post from Grant Hammond's Nashville Real Estate Blog.

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“BB&T has moved its commercial lending and wealth management operations from Belle Meade to the Terrazzo in the Gulch.

BB&T signed the lease for space in the $68 million mixed-use tower in early 2008, when it was the first commercial tenant to lease space in the building.

The bank’s commercial division has been located at One Belle Meade Place for five years. BB&T’s Nashville insurance arm, Cooper Love Jackson Thornton & Howell, will stay at the Belle Meade office.

“The Terrazzo location downtown makes a statement about BB&T’s commitment to our clients, Nashville and Middle Tennessee,” says Natalie Ruggiero, who heads BB&T area operations, in a release.

The bank will hold a grand opening soon for a full-service retail financial center to be located in the Terrazzo.

BB&T opened its Nashville based commercial lending operation in 2004. The bank has two other Nashville area branches, one in Green Hills and the other in Cool Springs. BB&T operates 1,500 financial centers in 11 states and Washington D.C.”

This is certainly great news for the Terrazzo as well as for the other condo developers in the Gulch. A commercial tenant as prestigious as a commercial banking tenant is not easy to land in today’s volatile market. For more Nashville office space news, check out what the guys at Cumberland Commercial are doing.

See all condos for sale in The Terrazzo

This is a post from Grant Hammond's Nashville Real Estate Blog.

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“From a seller’s perspective, the sale price of Boston’s iconic John Hancock Tower yesterday was anything but positive. The 60-story building, the tallest in the city, was purchased at a foreclosure auction in New York City by a partnership between Normandy Real Estate Partners and Five Mile Capital Partners for $660.6 million.

That price represents a 50% discount on the $1.3 billion Broadway Partners paid Beacon Capital Partners for the property in December 2006. Beacon paid an estimated $586 million for the asset in March 2003. Normandy Real Estate Partners and Five Mile Capital Partners reportedly had acquired $75 million of the debt on the 1.7 million sq. ft. property in June. Early this year, Broadway defaulted on the loans, putting the lenders in the position to buy the property. The $660.6 million sale price also includes a 2,013-space parking garage and 26,642 sq. ft. of retail space.

“The high levels of indebtedness that commercial properties incurred during the past cycle are adding tremendous pressure in the current downturn, given rising vacancies and falling operating incomes,” says Kyle McLaughlin, a Reis analyst.

Prior to the foreclosure auction, which lasted just 10 minutes and drew a single bidder, Reis estimated the property’s value to be in the range of $650 million to $750 million.

The firm’s valuation was not based on cap rates or comparable sales, given that overall office transaction volume plummeted from $101.5 billion in 2007 to $34.5 billion in 2008 – a whopping 67% decline. Instead, the New York-based research firm arrived at its price based on rent, occupancy and expense projections over a 10-year holding period.

So was the $1.3 billion price tag merited? “In 2007, it certainly seemed like it was justified,” says Victor Calanog, director of research for Reis. In 2006, cheap debt and a robust securitized lending market “allowed a lot of people to raise capital.” In 2007, office rents nationally grew by 10.6%. In New York, over the same period, rents jumped by more than 25%.

Whether or not other trophy properties acquired at the height of the boom will meet a similar fate will largely be dependent upon a given property’s fundamentals as well as the financial health of the property’s owners. “If these are big owners and they have fairly deep pockets elsewhere that can support debt payments for even a property that might not be meeting its actual debt service, then they might be okay,” says Calanog.

During the peak, says Calanog, Reis witnessed transactions closing anywhere from 25% to 30% higher than fundamental values derived from income. “There were deals happening where we couldn’t justify the value on the income the property was generating, even if you were very optimistic about rent growth,” he says.

Reis also conducted an income-based valuation on 666 Fifth Avenue, the former Tishman Buiding. The iconic New York structure was purchased by Kushner Properties for $1.8 billion in January 2007 from Tishman Speyer Properties and German investment firm TMW. The hefty sum was reportedly the highest price ever paid for an individual building in Manhattan.

Valued by rental income in the third quarter of 2008, says Calanog, 666 Fifth Avenue is now worth $1.25 billion, or roughly a third of its 2007 purchase price. The valuation was based on full occupancy and the assumption of a slight rise in vacancy in 2010 and 2011.

But here’s the good news. Unlike past downturns where the office market recovery lagged job growth by 18-24 months, Calanog expects the sector to recover in 12 to 18 months. Why will recovery occur more quickly than in past recessions? The problem today is lack of demand, not overbuilding. “If the economy recovers in 2010, we might see a recovery in early to mid 2011 for rents and occupancies,” says Calanog.

As for a recovery of valuations, he projects, “No time soon.”

This is a post from Grant Hammond's Nashville Real Estate Blog.

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The Gulch is most notably known for its residential and condo new construction projects. Currently the Icon, the Velocity, and the Terrazzo are all under construction and will deliver almost 1,000 condos between the summer of 2008 and the end of 2009. It is our belief that the Gulch will become the premier downtown residential area of Nashville by 2010 if construction in Sobro is further delayed.

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The Terrazzo Gains Commercial Office Tenant

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This is a post from Grant Hammond's Nashville Real Estate Blog.

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